Types of taxes and their functions - GovtVacancy.Net

Types of taxes and their functions

The tax is a mandatory, individually free payment, forcibly collected by state authorities at various levels from organizations and individuals to financially support the activities of the state and (or) municipalities.

Taxes must be distinguished from rates (rights), the collection of which is not free, but is a condition for the commission of certain actions in relation to their payers.

Tax collection is regulated by tax legislation. The set of established taxes, as well as the principles, forms, and methods of their establishment, modification, cancellation, collection, and control form the State tax system.

Types of taxes

All taxes are divided into several types:

Direct and indirect taxes

Taxes are divided into direct, that is, those that tax economic agents for the income of production factors, and indirect, that is, taxes on goods and services, which consist of the price of the goods themselves.

• Direct taxes can be referred to as IRPF, IRPF, and similar taxes.
• Indirect taxes include value-added taxes, excise taxes, and other taxes.

Flat-rate and income taxes

It is also customary to distinguish between flat-rate taxes and income taxes.

The State establishes flat-rate taxes regardless of the income level of an economic agent.

Income taxes mean taxes that make up a certain percentage of income.

This dependency is shown by either the marginal tax rate, which explains how much the tax increases with an increase in income of one currency unit or the average tax rate: simply the ratio of the amount of tax collected to the amount of income.

Progressive, regressive, or proportional taxes

Income taxes themselves are divided into three types:

• Progressive taxes: These are taxes in which the average tax rate increases as income increases. Therefore, if the agent's income increases, the tax rate also increases. If, on the contrary, the amount of rent falls, the rate also falls;
• Regressive taxes: are taxes whose average tax rate decreases as income increases. This means that, with an increase in the income of an economic agent, the rate falls and, on the contrary, it grows if the income decreases;
• Proportional taxes: taxes whose rate does not depend on the amount of taxable income.

Main functions of taxes

Taxes simultaneously fulfill four main functions: fiscal, distributive, regulatory, and control.

° The fiscal function of taxes:  Historically the oldest and at the same time the main one: taxes are the predominant component of state budget revenues. The fulfillment of the function is carried out through tax control and tax sanctions, which ensure maximum collection of established taxes and create obstacles to tax evasion.

In short, it is the collection of taxes in favor of the state. Thanks to this function, the main purpose of taxes is realized - the formation and mobilization of the financial resources of the state. All other taxation functions are derived from the fiscal function.

° The distributive (social) function of taxes: it consists in the redistribution of public income (there is a transfer of funds in favor of the weakest and most unprotected categories of citizens by imposing a tax burden on the strongest categories of the population).

° The regulatory function of taxation: it is aimed at solving certain tasks of the State's economic policy through tax mechanisms.

° The tax control function - allows the state to monitor the timeliness and completeness of cash receipts to the budget and compare their amount of financial resources.

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